Tuesday, October 22, 2013

About that Inequality

Everyone believes that income inequality is getting worse in America.*

Funny thing, facts: they don’t always line up with beliefs.

And the facts are that income inequality

Is wider across individuals than across families and households.

Has not changed much across individuals over the last 20 years.

Has increased among families and households over the last 20 years.

The first bullet point deserves a little explanation. Parents form a family and/or household even if one works and one doesn’t. But, if they get a divorce, we now have two individuals with a great deal of income inequality between them. Families and households have less income inequality precisely because they are a way for unequal singles to group together and share resources.

So, if income is not distributed more unevenly across individuals, but it is distributed more unevenly across families and households, then it must be something about the structure of families and households that is increasing inequality.

And yet, to the extent that forming families/households smooths out inequality, then any increase in inequality must be a fault of the story of smoothing that I told two paragraphs up.

The only conclusion is that increases in income inequality across families and households is because families and households are being formed in an unequal way. More specifically, it’s because we have two richer singles getting married, and two poorer singles getting married, when in the past those two couples would have been “shuffled” more.

In short, we don’t have an inequality of income problem, we have a mate sorting problem. Nothing the government does about income inequality is going to change that.

* Never you mind that it’s consumption inequality we should really be worried about, rather than income inequality. I may be cynical, but I think the reason that government officials worry more about income inequality is that it’s easier to siphon off some of the income going into a rich person’s bank account, than it is to siphon off some of the steak that they buy with it.